(Corrects EUR/USD low to 1.0125)

Feb 25 (Reuters) - EUR/USD which spent almost two years trading within 1.05-10 crashed to 1.0125 earlier this month, ending a period of low volatility and ushering in lower ranges and potentially the prospect of bigger movement.

There seems to be big interest to adjust for this eventuality, evidenced by the significant resistance emerging around the base of the prior range, which held for much of 2023 and 2024.

Investors certainly have cause to hedge the risk of a deeper drop with techs bearish following a swift plunge from 1.1214, and changes in U.S. and eurozone interest rates supporting a deeper drop. So does the prospect of a trade war which would favour the dollar as the global reserve currency, above any other.

With the old range 5 cents wide, the obvious base for a developing one is parity and there is a clear need to hedge risks related to a point of such great significance.

Traders will likely use more options to cover the risk of a test or break of parity at some stage in the next 12 months, which should support a rise in vols that will likely lead to greater speculation.

Where carry trades prospered in the last two years, there is a much higher chance of bigger moves in the next year. The unwinding of euro longs that were held as carry trades is well underway, with EUR/JPY dropping from 163 toward 156 this year.

That drop may gather pace, with traders flipping from investments focused on interest rates, to directional bets that the euro weakens further alongside a bigger fall for eurozone interest rates.
EUR/USD, EURJPY and option vols

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)